Direct Deposit Push Exposes Social Security Recipients to Bank Payday Loans

/PRNewswire/ -- The federal government's push to require all recipients of Social Security and other benefits to receive payments by direct deposit will expose many seniors to predatory payday loans made by banks.

That's the conclusion of "Runaway Bandwagon: How the Federal Government's Push for Direct Deposit of Social Security Benefits Has Exposed Seniors to Predatory Bank Loans," a new report issued by the National Consumer Law Center.

"Treasury must stop banks from making these high-cost, short-term loans to Social Security recipients," said Margot Saunders, an attorney with NCLC and an author of the report. "These loans are only made because they are fully secured by a borrower's next direct deposit of federal funds."

"While federal law protects Social Security and other benefits from seizure by creditors, banks regularly take those benefits as repayment for what are essentially payday loans that they have made without even assessing borrowers' ability to afford those loans," Saunders added.

"Runaway Bandwagon" spotlights account advance loan products - some with Annual Percentage Rates as high as 1,800% - that some banks offer to customers with checking accounts or prepaid debit cards. Banks help themselves to funds from customers' accounts to repay loan principal and fees, so that these loans closely resemble both fee-based overdraft programs and payday loans.

"With these loans, banks profit from vulnerable and hard-pressed recipients of federal benefits, trapping them in a cycle of mounting debt and high borrowing costs," said Leah Plunkett, an attorney with NCLC and an author of the report. "In effect, these high-cost loans are used to hijack benefits federal law intends to provide for the basic needs of elderly and disabled citizens."

More seniors and vulnerable benefits recipients will become the targets for such loans as the Treasury Department moves forward with its plan to require electronic payments to all federal benefit recipients by 2013. New protections are needed to prevent the victimization of seniors and other vulnerable consumers and preserve income from Social Security and other social insurance programs that many seniors depend upon for survival.

Treasury must ensure that when accounts used for benefit deposits are used to secure loans, those loans are made only after an evaluation of the borrower's ability to afford repayment, carry APRs including fees of no more than 36%, have a term of at least 90 days or one month per $100 borrowed and allow repayment in multiple installments. Treasury must also prohibit banks and other lenders from requiring borrowers to provide as security electronic access to a bank account. Borrowers who do allow lenders such access must be permitted to end that access at any time and at no cost.

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Credit Card Statements Will Have A New Look in February

/PRNewswire/ -- The Credit Card Accountability Responsibility and Disclosure Act of 2009, commonly known as the CARD Act, has been signed into law and the Board of Governors of the Federal Reserve System has issued a final rule elaborating on some of the CARD Act's requirements.

Even though the implementation deadline for certain CARD Act requirements is not until February 22, 2010, many credit card issuers already have several elements of their CARD Act compliance plan in place. For instance, consumers can expect their February credit card statements to have a new look.

One prominent change to statements is the requirement that consumers be provided with an illustration of how long it will take them to pay off their balance, illustrating paying only the minimum amount due each month versus paying off the debt in three years. This will be a real eye-opener for millions of Americans who will now see each month just how serious their debt obligations are.

Further, the statements will now include contact information for nonprofit counseling agencies that may serve as a resource for sorting though their financial challenges. The Act requires issuers to prominently display a toll-free number where consumers may receive information about accessing credit counseling. Not only will this information help make consumers aware that help is available, but it will add a layer of protection by directing them to government-approved nonprofit counseling agencies for assistance.

As the largest and longest-serving network of community-based nonprofit credit counseling agencies in the nation, it is no surprise that the National Foundation for Credit Counseling (NFCC) has stepped-up to the plate and enhanced its National Locator Line (NLL) to support the government's new requirements. Through the NFCC NLL consumers will have access to certified counselors in 50 states and Puerto Rico and have the ability to receive assistance in 31 languages.

"The NFCC has always encouraged consumers to deal with their credit problems sooner rather than later. Now, with the help of the government, they will receive contact information on their monthly statements, so they can do just that," said Susan C. Keating, president and CEO of the NFCC. "This is a critically important step particularly since so many American consumers are in serious financial trouble and need help, and is consistent with the NFCC's mission to promote the national agenda for financially responsibly behavior."

Already more than 200 lenders have elected to utilize the NFCC's network to comply with the CARD Act and to assist their customers in need of financial counseling and education. The NFCC's enhanced NLL is operational now, well in advance of the February 22 deadline, allowing those who receive their February statements early in the month the ability to immediately reach out for help.

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